Ref: 12/00
Date: 6 March 2000

A consultation document setting out a range of options for future price controls on BT has been published by Oftel today.

The options include the continuation of price controls, as well as measures to drive down prices by promoting greater competition from other telecoms companies.

The document sets out three broad approaches for future price control arrangements:

• Continuation of current price controls targeted at the bottom 80% of BT’s residential customers by spend;

• Wider price controls covering all BT’s customers; and

• New measures to liberalise the market and encourage competition, with a number of options to ensure all customers are still protected if competition leads to a change in the balance between line rental and call prices.

After considering the responses Oftel receives on the options set out today, Oftel will publish firm proposals for future price controls in December.

Commenting on the proposals, David Edmonds Director General of Telecommunications said:

"Oftel has yet to reach firm conclusions on the need and form of future price controls on BT. We have therefore today published a number of options for when the current price controls end in 2001, and for which we now seek the views of industry and consumers.

"These range from extending price controls to all BT customers to measures to encourage greater competition from other operators, while still protecting BT customers.

"In deciding what action to take, Oftel will want to ensure that the majority of customers benefit from vigorous competition, while low spending consumers are protected. The views of industry and consumers will therefore be an important input into Oftel’s consideration of which option best achieves this.

"The ideas we are considering are consistent with Oftel’s overall strategy to withdraw from regulation where competition is strong enough to provide quality, choice and value-for-money for consumers. Where competition is not yet effective, regulation will continue to provide the protection which consumers need."

The current price controls were set by Oftel in 1997 and are due to run out in 2001. Under these controls, the bottom 80% of BT’s lowest spending residential customers are guaranteed annual price reductions of RPI – 4.5%.

The deadline for comments on Oftel’s proposals is 5 May.

Note to Editors

1. ‘Price Control Review – A consultative document issued by the Director General of Telecommunications on possible approaches for future retail price and network charge controls‘ is available from Oftel’s website. Copies are also available to the media from Oftel’s Press Office on 0171-634 8991 or to the public from Oftel’s Research and Intelligence Unit on 0171-634 8700.

2. The current set of retail price controls covers residential line rental and the prices of local, national and international calls. It is based on the spending patterns of the 80% of residential customers with the lowest bills. Small business customers are also protected by an assurance that a package for them will be available with call prices at least as good as those for residential customers. BT’s network business, which sells wholesale to other operators, comes under the network charge control regime.

3. There are three broad options for future price controls:

Option 1: Continuation of price controls with a similar structure to the current ones targeted at the lowest 80% of BT's customers by spend.

Option 2: Broader price controls applying to all consumers.

Option 3: Increasing competitive rather than regulatory pressure on BT's prices by extending current interconnection rights and making available a new cost based access product for service providers.

There are a number of variations to this option in addition to the new cost based access product for service providers, to ensure that customers are protected from bill increases, and that BT has the opportunity to recover relevant costs:

• The continuation of price controls broadly along the lines of the existing ones.

• The complete withdrawal of price controls.

• Withdrawal of price controls, but with constraints on increases in BT's line rental price for all customers. BT would be allowed to recover a greater proportion of common costs through interconnection charges than currently permitted.

• Protection of the lowest spending residential customers through a control on their bills, with a Universal Service Fund to enable BT to recover its costs.

• As the previous variation, but allowing gradual increases in BT's line rental.

4. Oftel’s first consultation document to assess the level of competition in the residential market ‘Price control review: Future developments in the competitiveness of UK telecommunications markets was published 7 July 1999. As part of the consultation process, Oftel held a number of regional public meetings to give the public the opportunity to give their views on the residential calls market.

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